Stocks fall after inflation report
NEW YORK>> A washout on Wall Street sent stocks sinking Wednesday, as worries rose that what seemed like a blip in the battle to bring down inflation is turning into a troubling trend.
The S&P 500 dropped 0.9%, and the vast majority of stocks within the index fell.
The Dow Jones Industrial Average tumbled 422 points, or 1.1%, and the Nasdaq composite sank 0.8%
Treasury yields also leaped in the bond market, raising the pressure on the stock market, after a report showed inflation was hotter last month than economists expected. It’s the third straight report to suggest progress on bringing high inflation down may be stalling. That hurts hopes that January’s and February’s disappointing inflation data may not have been as bad as they seemed because of some technical reasons.
“There are still embers of inflation here and there in the economy,” said Joe Davis, chief global economist at Vanguard.
For shoppers, that’s painful because of the potential for even higher prices at the store. For Wall Street, it raises fears that the Federal Reserve will hold back on delivering the cuts to interest rates that traders are craving and have been betting on.
The S&P 500 had already leaped more than 20% since Halloween in part on expectations that the Federal Reserve would lower its main interest rate, which is sitting at its highest level in more than two decades.
Such cuts would relax the pressure on the economy and encourage investors to pay higher prices for stocks, bonds, cryptocurrencies and other investments.
But the Fed has been waiting for more evidence to show inflation is heading sustainably down toward its goal of 2%.
After an encouraging cooling last year, the fear now is that inflation may be stuck after January’s, February’s and March’s inflation reports all came in hotter than expected, along with data on the economy generally.
“Two data points don’t make a trend, but maybe three do,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“If we get one more reading like this, Fed chatter will shift from when to cut to whether to hike.”
Prices for everything from bonds to gold fell immediately after the morning’s release of the inflation data.
The yield on the 10-year Treasury jumped to 4.54% from 4.36% late Tuesday and is back to where it was in November. The two-year yield, which moves more on expectations for Fed action, shot even higher and rose to 4.97% from 4.74%.
Traders sharply cut back on bets that the Fed could begin cutting rates in June. They now see just a 17% chance of that, down from nearly 74% a month ago, according to CME Group’s Fedwatch tool.
Perhaps more importantly, traders shifted more bets toward the Fed cutting rates just twice over the course of this year. At the start of the year, they were forecasting six or more cuts through 2024.